XML 28 R15.htm IDEA: XBRL DOCUMENT v3.19.2
Equity Method Investments
 6 Months Ended
Jun. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments
Note 7. Equity Method Investments

Our investments accounted for under the equity method of accounting totaled $7,095 million as of June 30, 2019 and $7,123 million as of December 31, 2018. Our largest investments are in Jacobs Douwe Egberts (“JDE”) and Keurig Dr Pepper Inc. (NYSE: "KDP”).

JDE:
As of June 30, 2019, we held a 26.5% voting interest, a 26.4% ownership interest and a 26.2% profit and dividend sharing interest in JDE. We recorded equity earnings of $53 million in the second quarter of 2019 and $42 million in the second quarter of 2018 and $103 million in the first six months of 2019 and $88 million in the first six months of 2018. We also recorded $73 million of cash dividends received during the first quarter of 2019 and $73 million of cash dividends received during the first quarter of 2018.

JDE / Keurig Exchange:
On March 7, 2016, we exchanged a portion of our 43.5% JDE equity interest for a new equity interest in Keurig Green Mountain, Inc. ("Keurig"). Following the transaction, our JDE equity interest became 26.5% and our new Keurig equity interest was 24.2%. During the first quarter of 2016, we recorded the difference between the $2.0 billion fair value of Keurig and our basis in the exchanged JDE shares as a gain of $43 million. In the second quarter of 2019, we determined an adjustment to accumulated other comprehensive losses related to our JDE investment was required, which reduced our previously reported gain by $29 million. We recorded the adjustment in the net loss on equity method transactions in the second quarter.

Keurig Dr Pepper Transaction:
On July 9, 2018, Keurig closed on its definitive merger agreement with Dr Pepper Snapple Group, Inc., and formed Keurig Dr Pepper Inc. (NYSE: "KDP"), a publicly traded company. Following the close of the transaction, our 24.2% investment in Keurig together with our shareholder loan receivable became a 13.8% investment in KDP. During 2018, we recorded a pre-tax gain of $778 million reported as a gain on equity method transaction and $192 million of deferred tax expense reported in the provision for income taxes (or $586 million after-tax gain) related to the change in our ownership interest.

We hold two director positions on the KDP board as well as additional governance rights. As we continue to have significant influence, we continue to account for our investment in KDP under the equity method, resulting in recognizing our share of their earnings within our earnings and our share of their dividends within our cash flows.

In connection with this transaction, during the third quarter of 2018, we changed our accounting principle to reflect our share of Keurig's historical and KDP's ongoing earnings on a one-quarter lag basis while we continue to record dividends when cash is received. We determined a lag was preferable as it enables us to continue to report our quarterly and annual results on a timely basis and to record our share of KDP’s ongoing results once KDP has publicly reported its results. This change in accounting principle was applied retrospectively to all periods. While our operating income did not change, equity method investment net earnings, net earnings and earnings per share have been adjusted to reflect the lag across all reported periods.

The following tables show the primary line items on the condensed consolidated statements of earnings and comprehensive earnings that changed as a result of the lag. The condensed consolidated statements of cash flow and equity were also updated to reflect these changes.
 
For the Three Months Ended
June 30, 2018
 
For the Six Months Ended
June 30, 2018
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
(in millions)
Statements of Earnings
 
 
 
 
 
 
 
Provision for income taxes
$
(14
)
 
$
(15
)
 
$
(321
)
 
$
(352
)
Equity method investment net earnings
91

 
87

 
185

 
319

Net earnings
325

 
320

 
1,269

 
1,372

Net earnings attributable to
   Mondelēz International
323

 
318

 
1,261

 
1,364

Earnings per share attributable to
   Mondelēz International:
 
 
 
 
 
 
 
Basic EPS
$
0.22

 
$
0.22

 
$
0.85

 
$
0.92

Diluted EPS
$
0.22

 
$
0.21

 
$
0.84

 
$
0.91

 
 
 
 
 
 
 
 
Statements of Other Comprehensive Earnings
 
 
 
 
 
 
 
Currency translation adjustment
$
(874
)
 
$
(876
)
 
$
(667
)
 
$
(666
)
Total other comprehensive earnings/(losses)
(680
)
 
(681
)
 
(525
)
 
(523
)
Comprehensive earnings attributable to
   Mondelēz International
(345
)
 
(351
)
 
733

 
838



As of June 30, 2019, we held a 13.6% ownership interest in KDP. Our ownership interest in KDP may change over time due to stock-based compensation arrangements and other transactions by KDP. During the first quarter of 2019, we recognized a $23 million pre-tax gain related to the impact of a KDP acquisition that decreased our ownership interest from 13.8% to 13.6%. As of June 30, 2019, based on KDP's closing stock price, the fair value of our ownership interest in KDP was $5.5 billion, which exceeded the carrying value of our KDP investment.

We recorded equity earnings and cash dividends of $35 million and $28 million in the second quarter of 2019 and equity earnings, shareholder loan interest and cash dividends of $16 million, $6 million and $2 million in the second quarter of 2018. We recorded equity earnings and cash dividends of $72 million and $57 million in the first six months of 2019 and equity earnings, shareholder loan interest and cash dividends of $170 million, $12 million and $5 million in the first six months of 2018.